Check Your Sources
Review the source of your information. Do they have the right agenda, or are they trying to sell advertising space with click bait? We are hearing a lot about “market crashes” and “plummeting markets”, but we heard hardly anything about the significant market out performance last calendar year. The media is promoting fear and panic in the markets and you should try to block out the noise and focus on what’s actually important.
Humankind, and by extension economies, get growth from these types of adversity. A whole generation of savers came out of the great depression; perhaps a generation of people with better hygiene practices will come out of this event. This is also a great opportunity to improve your knowledge and understanding of what risks you are exposed to.
Life doesn’t stop, it changes. Subscriptions to Netflix increase whilst the number of cruises falls. This has occurred many times in history. We diversify within KiwiSaver and portfolios as we can’t predict these events. This means that whilst there’s a downturn, there is no chance that you will lose all of your money.
Safe as Houses?
We can see our KiwiSaver and investment balances moving and tend to focus on these, but don’t think your property is immune. New Zealand is an economy based on agriculture and tourism. Both are badly affected if our economy is hurting; it is just a matter of time till the property market is impacted. If the value of your rental property fell, you probably wouldn’t panic sell that to put your money in the bank. You would instead, ride the wave, and wait for the property market to recover, whilst collecting your rental income in the meantime. As long as your investments are still doing what they are supposed to do (generally taking on some level of risk in order to try to get you a better long term return and allow you a better retirement), and providing you with dividends, then ride the wave with them as well.
Check the Plan
Check your financial plan. If you don’t have one, should you make one? If you have one, did it allow for big market / life shocks like this? It should have and most likely it had a long-term perspective that is required in a time like this. If it didn’t it needs amending! In any long term forecast of what we expect an investment to return, we assume there will be downturns, and this is just one of those unfortunately.
Don’t Check your Balance too Often (or at all!)
If you have the right level of risk profile (Conservative / Balanced / Growth etc) and you don’t need to access your money for the next few years, then don’t follow your balance because it doesn’t matter. You don’t track the daily valuation of your house, so don’t give yourself unnecessary worry about checking your investments on a daily basis.
Do Check your Risk Profile
We have had 10 years or good market returns, so it’s hard to remember what the global financial crisis felt like. KiwiSaver balances back then weren’t significant either. As much as rationally, we think that we can handle a drop in value of 10-15% in any one year, the reality of it actually happening becomes less rational and more emotional. Now is a good time to check in with whether you are actually comfortable with the level of risk in portfolios. If you need a significant portion of your money out within the next couple of years (either for your first house or for retirement), then perhaps you shouldn’t be taking much risk at all and should review your situation.
Take the Good with the Bad
You have to take the good with the bad as well. Using the Balanced KiwiSaver fund as an example, the long term expected return (after fees but before tax) is only 5% a year. Last year, it returned 9%, and over the last 5 year has averaged 6.4% a year. I had very few enquiries from people asking why their KiwiSavers had GAINED so much! The balance is that those long-term expectations assume there will be downturns, and so perhaps the performance over this year will bring that 5-year return back down to the expectations.
The information in this article should not be considered to be personalised financial advice. We strongly recommend you speak to us before making any changes that may affect your long term plans. If you require advice, please get in touch.